Today in Brexit, Day 1,000

1,000 days ago, Brits went to the polls, with 52% of voters electing to leave the EU, kicking off the long-running saga known as “Brexit.” In the last episode of this political soap opera, UK Members of Parliament (MPs) had once again rejected Prime Minister Theresa May’s Brexit deal, teeing up two additional votes: one to reject a “no-deal” Brexit and one to delay the departure date past March 29. Both passed last week, leading to May’s Plan C: get Parliament to pass the deal this week, then get a short delay to give her government a bit more breathing room to implement said deal. But House of Commons Speaker John Bercow threw cold water on that plan Monday, invoking a Parliamentary procedure that resembles US “double jeopardy” laws to declare a revote illegal unless the legislation were significantly modified. Now May is launching Plan D: requesting a three-month Brexit delay to buy more time to modify and pass a deal. As we write, the ball is in Brussels’ court, and with Brexit still scheduled to take effect at 11:00 PM GMT March 29, this could still go any number of ways—including a no-deal Brexit. Uncertainty is high, the pound is yo-yoing as sentiment gyrates, and we still think markets will be happiest once they just get on with it, whatever that looks like.

Preliminary rumblings from Brussels suggest this could go down to the wire. Accepting the UK’s requested delay requires unanimous consent from all other 27 EU member-states. At the moment, that consensus doesn’t exist. They can’t even agree on whether delaying Brexit to June 30 would disrupt the upcoming European Parliament elections by requiring Brits to field candidates and vote. Some say it would be fine, as Parliament isn’t seated until July 1. Others call it a no-go, citing the late-May election date as a hard deadline. As for the mere notion of an extension, Poland seems ok with it, but France has suggested it doesn’t see the point and would rather just get on with a no-deal endgame. European Council President Donald Tusk, who chairs discussions among the EU’s heads of state and government, says they’ll likely grant an extension only if May’s deal passes. The very deal Bercow says can’t return to Parliament—which is nonetheless expected to return to Parliament Monday. Circular logic if we have ever seen it.

While MPs rejected a no-deal Brexit last week, that doesn’t rule out a no-deal Brexit actually happening. It’s all rather like when George tried to break up with Maura on Seinfeld and they both had to “turn their keys.” Parliament turned its key. But if the EU doesn’t turn its key and grant a delay, then a no-deal Brexit happens by default on March 29.

Throughout the eurozone crisis, EU leaders demonstrated a remarkable ability to dither until the last possible minute and then kick the can, so a literal 11^th hour delay is possible. Heck, they could even make nicey-nice and agree to it at Thursday’s summit, though the ensuing UK Parliamentary vote would remain a wildcard. Failing some kind of resolution by Monday, the UK government isn’t keen on waiting until March 29 to spring into action, so they are reportedly preparing to launch no-deal contingency plans on Monday if an extension isn’t in place by then. This action plan, dubbed Operation Yellowhammer (we swear you can’t make this stuff up), includes food and drug stockpiling (potentially with government distribution), awkward television advertisements pleading for calm and, based on other reported plans last week, removing nearly 90% of all import tariffs—making a no-deal Brexit an experiment in overnight free trade. There has been some talk of rationing and restricted diets, though in theory, zapping trade barriers would negate this.

The latest rumblings have also caused another round of political earthquakes. May has lost most of her cabinet’s support and has threatened to resign if Parliament or the EU try to force a longer delay. Labour leader Jeremy Corbyn is going over her head and meeting with EU Brexit negotiator Michel Barnier in an apparent attempt to break the impasse and maneuver for the top job—apparently a bet that voters will ignore the cognitive dissonance in his own Brexit stance if a snap election happens. That is all a very long way of saying it is far from clear who will be heading the UK’s government in three or six months’ time. Polls continually show voters’ preferred Prime Minister alternates between “Don’t Know” and “Other.”

Interestingly, however, public sentiment seems to be coming around toward a no-deal Brexit. Take any single poll with a grain of salt, but a new ComRes poll conducted for The Telegraph shows “46 per cent of adults think leaving without a deal would ‘briefly cause some uncertainty but ultimately work out ok,’ compared with 40 per cent who support extending Article 50.” That is a far cry from the abject disaster most feared even just weeks ago, which shows how widespread Brexit fatigue has become—as well as how much sentiment has moved on. People are getting used to the notion of a no-deal Brexit, just as they have gotten used to—and gotten over—other political developments that were supposedly negative for markets, like Italy’s populist government and the elections of the two most recent American presidents. Consider this another bit of evidence a no-deal Brexit is likely already priced into UK and global stocks.

At this point, we suspect a no-deal Brexit that entails overnight free trade would be a delightful outcome for global capital markets. Uncertainty would end, and stocks generally smile when trade barriers drop. Getting a deal and a surefire June 30 exit would likely also be fine, as it would also end the uncertainty. Even a longer extension, which could trigger a snap election, would probably give markets some quiet time after elevating uncertainty in the near term. But the least optimal outcomes, from markets’ standpoint, would likely be a second referendum—and the heaping mountains of new uncertainty it would bring—or perpetual short-term can-kicking and an unending uncertainty dance.